At.116_The Auditor's Reports

8/11/2019 At.116_The Auditor's Reports

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AUDITING THEORY L. R. CABARLES

AT.116-The Auditors Oi!io!s "!d Reorts 1stSe#. SY $%1&-1'

LECTURE NOTES

I!trodu(tio!

At the end of the audit, the auditor shall:

a) Form an opinion on the financial statements (FSs)based on an evaluation of the conclusions drawn fromthe audit evidence obtained; and

b) Express clearly that opinion throuh a written reportthat also describes the basis for the opinion!

Auditors Oi!io!s

Types of Auditors Opinions

a) "nmodified (un#ualified) opinion$%he opinionexpressed when the FSs are prepared, in all materialrespects, in accordance with the applicable F&F!

b) 'odified opinion$%he three types of are:i! ualified opinion the auditor is satisfied that the

FSs are presented fairly, except for a specificaspect of them!

ii! Adverse opinion the auditor does not believe theFSs are fairly presented!

iii! *isclaimer of opinion the auditor does not +nowif the FSs are presented fairly!

%he table below illustrates how the auditors -udmentabout the affects the type of opinion to be expressed!

Nature of Matter GivingRise to the Modification

Material butNot

Pervasive

Material andPervasive

FSs are materiallymisstated

ualifiedopinion

Adverseopinion

Inability to obtain SAA !Scope li"itation#$*ue to manaementimposed limitation

ualifiedopinion

&esin, ifappropriate; or

*isclaimer ofopinion

.ther limitations ualifiedopinion

*isclaimer ofopinion

/ervasive effects or possible effects on the FSs are thosethat, in the auditors -udment:a) Are not confined to specific elements, accounts or

items of the FSs;b) 0f so confined, represent or could represent a

substantial proportion of the FSs; or

c) 0n relation to disclosures, are fundamental to usersunderstandin of the FSs!

Auditors Reorts

%he auditors report shall be in writin (hard copy formator an electronic medium)!

Standard Auditors Report

%he followin are the parts of a standard auditors reportwith un#ualified opinion without emphasis of matterpararaph and other matter pararaph:a) %itleb) Addresseec) Sub1title (if the report includes 2.ther &eportin

&esponsibilities3 pararaph in (h))d) 0ntroductory /araraphe) 'anaements &esponsibility for the financial

statementsf) Auditors &esponsibility) Auditors .pinionh) .ther &eportin &esponsibilities, if applicable

i) Sinature of the Auditor-) *ate of the Auditors &eport+) Auditors Address

%itle

%he auditors report shall have a title that clearly indicatesthat it is the report of an independent auditor! Forexample, 20ndependent Auditors &eport,3 affirms that theauditor has met all of the relevant ethical re#uirementsreardin independence and distinuishes the independentauditors report from reports issued by others!

Addressee

%he auditors report is normally addressed to those forwhom the report is prepared, often either to theshareholders and4or to %567 of the entity!

0ntroductory /araraph

%he introductory pararaph in the auditors report shall:

a) 0dentify the entity whose FSs have been audited;b) State that the FSs have been audited;c) 0dentify the title of each statement comprisin the FSs;d) &efer to the summary of sinificant accountin policies

and other explanatory information; ande) Specify the date or period covered by each FS

comprisin the FSs!

'anaements &esponsibility for the Financial Statements

%his section describes the responsibilities of those in theorani8ation responsible for the FSs and internal controlrelevant to the preparation of FSs that are free frommaterial misstatement, whether due to fraud or error!

Auditors &esponsibility

%his section states that the responsibility of the auditor isto express an opinion on the FSs based on the audit!

Auditors .pinion

%his includes a section with the headin 2.pinion!3 "se thephrase: %he financial statements present fairly, in allmaterial respects, in accordance with 9the applicablefinancial reportin framewor+!

.ther &eportin &esponsibilities

0f the auditor addresses other reportin responsibilities(e!!, reportorial re#uirement of reulatory authorities) in

the auditors report on the FSs that are in addition to toreport on the FSs, these shall be addressed in a separatesection in the auditors report that shall be sub1titled2&eport on .ther eal and &eulatory &e#uirements3!

Sinature of the Auditor

%he auditors report shall be sined! %he auditorssinature is either in the name of the audit firm, thepersonal name of the auditor or both, as appropriate!

0n the /hilippines, Securities &eulation 5ode (S&5) &uleureau of 0nternal &evenue

(>0&), be "anually signed! 0n case of an auditin firm, thecertifyin partner shall sin his4her own sinature and shallindicate that he4she is sinin for the firm, the name ofwhich is also indicated in the report! %he auditor is alsore#uired to state the sinin accountants license number,%ax 0dentification ?o! (%0?), /rivilee %ax &eceipt (/%&)?o!, reistration number with the /&54>.A, andaccreditation issued by the SE5!

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

*ate of the Auditors &eport

%he auditors report shall be dated no earlier than the dateon which the auditor has obtained SAAE on which to basethe auditors opinion on the FSs, includin evidence that:a! All the statements that comprise the FSs, includin the

related notes, have been prepared; andb! %hose with the reconi8ed authority have asserted that

they have ta+en responsibility for those FSs!

%he date of the auditors report informs the user of theauditors report that the auditor has considered the effectof events and transactions of which the auditor becameaware and that occurred up to that date!

0n the /hilippines, under S&5 &ule ecause of the matter(s)described in the >asis for *isclaimer of .pinionpararaph, however, we were not able to obtainsufficient appropriate audit evidence to provide a basisfor an audit opinion!3

>asis for 'odification /araraph

%he auditor shall include additional pararaph on the

standard auditors report immediately before theopinion pararaph, and use the headin 2>asis forualified .pinion,3 2>asis for Adverse .pinion,3 or2>asis for *isclaimer of .pinion,3 as appropriate!

.pinion /araraph %he auditor shall use the headin 2ualified .pinion,3

2Adverse .pinion,3 or 2*isclaimer of .pinion,3 asappropriate, for the opinion pararaph!

S"#)e o* Auditors Reorts

INDE+ENDENT AUDITORS RE+ORT

%he >oard of *irectors and Shareholders

&eport on the Financial Statements

6e have audited 9if disclaimer of opinion, 6e were

enaed to audit the accompanyin financial statementsof 9?ame of 5lient, which comprise the statements offinancial position as at 9&eportin *ate, BC and BCC,and the statements of 9comprehensive income, income,operations, or other appropriate title used in the financialstatements, statements of chanes in e#uity andstatements of cash flows for the years then ended, and asummary of sinificant accountin policies and otherexplanatory information!

Manage"ents Responsibility for the 'inancial State"ents

'anaement is responsible for the preparation and fairpresentation of these financial statements in accordance

with 9Applicable Financial &eportin Framewor+, and forsuch internal control as manaement determines isnecessary to enable the preparation of financial statementsthat are free from material misstatement, whether due tofraud or error!

Auditors Responsibility

9If (ualified opinion or adverse

.ur responsibility is to express an opinion on thesefinancial statements based on our audits! 6e conductedour audits in accordance with /hilippine Standards onAuditin! %hose standards re#uire that we comply withethical re#uirements and plan and perform the audit to

obtain reasonable assurance about whether the financialstatements are free from material misstatement!

An audit involves performin procedures to obtain auditevidence about the amounts and disclosures in thefinancial statements! %he procedures selected depend onthe auditors -udment, includin the assessment of theris+s of material misstatement of the financial statements,whether due to fraud or error! 0n ma+in those ris+assessments, the auditors consider internal control


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relevant to the entitys preparation and fair presentation ofthe financial statements in order to desin auditprocedures that are appropriate in the circumstances, butnot for the purpose of expressin an opinion on theeffectiveness of the entitys internal control! An audit alsoincludes evaluatin the appropriateness of accountinpolicies used and the reasonableness of accountin

estimates made by manaement, as well as evaluatin theoverall presentation of the financial statements!

6e believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our9#ualified or adverse, as appropriate audit opinion!

9If disclai"er of opinion

.ur responsibility is to express an opinion on thesefinancial statements based on conductin the audit inaccordance with /hilippine Standards on Auditin! >ecauseof the matter described in the >asis for *isclaimer of.pinion pararaph, however, we were not able to obtainsufficient appropriate audit evidence to provide a basis foran audit opinion!

Opinion )If un(ualified*un"odified opinion+

0n our opinion, the financial statements present fairly, in allmaterial respects, the financial position of 9?ame of 5lientas at 9&eportin *ate, BC and BCC, and its financialperformance and its cash flows for the years then ended inaccordance with 9Applicable financial reportinframewor+!

9If (ualified opinion

,asis for -ualified Opinion

%he 5ompanys inventories are reconi8ed in the statementof financial position at /C< million >ased on the auditevidence obtained, we believe that an ad-ustment toinventories of /D million is re#uired to reconi8e slowmovin items at their net reali8ed value! %he tax effect ofthis ad-ustment is /C!D million! Accordinly, we believethat shareholders e#uity and profit for the year areoverstated by /!D million respectively!

-ualified Opinion

0n our opinion, except for the effects of the mattersdescried in the basis for #ualified opinion pararaph, thefinancial statements present fairly, in all material respects,

the financial position of 9?ame of 5lient as of 9&eportin*ate, BC and BCC, and its financial performance andits cash flows for the years ended in accordance with/hilippine Financial &eportin Standards!

9If adverse opinion

,asis for Adverse Opinion

As discussed in ?ote to the financial statements, the5ompanys financin arranements expired and theamount outstandin was payable on *ecember C, B0!%he company has been unable to re1neotiate or obtainreplacement financin and is considerin fillin forban+ruptcy! >ased on the audit evidence obtained, we

believe that the company will not be able to meet itsobliations in the ordinary course of business! Accordinly,we do not aree with manaements preparation andpresentation of financial statements on a oin concernbasis! Gad the financial statements been prepared on ali#uidation basis of accountin, we believe that it would

have had a sinificant neative effect on the companysfinancial position and financial performance!Adverse .pinion

Adverse Opinion

0n our opinion, because of the sinificance of the matterdiscussed in the basis for adverse opinion pararaph, thefinancial statements do not present fairly, in all materialrespects the financial position 9?ame of 5lient as of9&eportin *ate, BC and BCC, and of its financialperformance and its cash flows for the years then ended inaccordance with /hilippine Financial &eportin Standards!

9If disclai"er of opinion

,asis for .isclai"er of Opinion

%he companys investment in its -oint venture HI(5ountry ) 5ompany is carried at xxx on the companysstatement of financial position, which represents over JBKof the companys net assets as at *ecember C, BC! 6ewere not allowed access to the manaement and the

auditors of HI, includin HIs auditors auditdocumentation! As a result, we were unable to determinewhether any ad-ustments were necessary in respect of thecompanys proportional share of HIs assets that itcontrols -ointly, its proportional share of HIs liabilities forwhich it is -ointly responsible, its proportional share ofHIs income and expenses for the year, and the elementsma+in up the statement of chanes in e#uity andstatement of cash flow!

.isclai"er of Opinion

>ecause of the sinificance of the matter described in the>asis for *isclaimer of .pinion pararaph, we have not

been able to obtain sufficient appropriate audit evidence to

provide a basis for an audit opinion! Accordinly, we do notexpress an opinion on the financial statements!

9If /ith e"phasis of a "atter

"phasis of Matter

6e draw attention to ?ote to the financial statements,which appropriately describe the sinificant uncertaintyrelated to the outcome of a lawsuit in which the companyis the defendant! %he lawsuit allees infrinement ofcertain patent riht and claims royalties and punitivedamaes in the amount of /CB million to the outcome ofthe lawsuit, the company believes that it will be able tosuccessfully defend its case and, accordinly, no provisionfor any liability that may result has been reconi8ed in thefinancial statements! .ur opinion is not #ualified in respect

of this matter!

&eport on .ther eal and &eulatory &e#uirements

9?A'E .F A"*0%0?7 F0&'>.A &eistration ?o!SE5 Accreditation ?o!%0?

>y:

9?A'E .F /A&%?E&/artner5/A icense ?o!SE5 A!?!%0?>0& A?!/%& ?o!, 0ssued on 9*ate, /lace of 0ssue'a+ati 5ity, /hilippines9*ate of Auditors &eport


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Su)e#e!t"r, I!*or#"tio! +rese!ted ith thei!"!(i") St"te#e!ts

Supplementary information information that is presentedtoether with the FSs that is not re#uired by the applicableF&F used to prepare the FSs, normally presented in eithersupplementary schedules or as additional notes!

%he auditor shall evaluate whether such supplementaryinformation is clearly differentiated from the audited FSs!0f such supplementary information is not clearlydifferentiated, the auditor shall as+ manaement to chanehow the unaudited supplementary information ispresented! 0f manaement refuses to do so, the auditorshall explain in the auditors report that such

supplementary information has not been audited! %he factthat supplementary information is unaudited does notrelieve the auditor of the responsibility to read thatinformation to identify material inconsistencies with the

audited financial statements!

Co#"r"ti/e I!*or#"tio!

%he two broad approaches to the auditors reportinresponsibilities in respect of comparative information are:a) 5orrespondin fiures comparative information where

amounts and other disclosures for the prior period areincluded as an integral part of the current period 'Ss,and are intended to be read only in relation to theamounts and other disclosures relatin to the currentperiod (referred to as 2current period fiures3)! %helevel of detail presented in the correspondin amountsand disclosures is dictated primarily by its relevance to

the current period fiures; and

b) 5omparative FSs comparative information whereamounts and other disclosures for the prior period areincluded for co"parison /ith the 'Ss of the currentperiodbut, if audited, are referred to in the auditorsopinion! %he level of information included in thosecomparative FSs is comparable with that of the FSs ofthe current period!

Audit Procedures

%he auditor shall evaluate whether:a) %he comparative information arees with the amounts

and other disclosures presented in the prior period or,when appropriate, have been restated; and

b) %he accountin policies reflected in the comparativeinformation are consistent with those applied in thecurrent period or, if there have been chanes in

accountin policies, whether those chanes have beenproperly accounted, presented and disclosed!

0f the auditor becomes aware of a possible materialmisstatement in the comparative information whileperformin the current period audit, the auditor shallperform such additional audit procedures necessary toobtain SAAE, includin re#uestin written representationsfor all periods referred to in the auditors opinion!

Audit Reporting

%he essential audit reportin differences between the

approaches are:a) For correspondin fiures, the auditors opinion on the

FSs refers to the current period only; whereasb) For comparative FSs, the auditors opinion refers to

each period for which FSs are presented!

5orrespondin fiures

%he auditors opinion shall not refer to the correspondinfiures because the auditors opinion is on the currentperiod FSs includes correspondin fiures, except:

a) 'odification in auditors report on the prior periodremain unresolved

b) 'isstatement in prior period FSsc) /rior period FSs not auditedd) /rior period FSs audited by a predecessor auditor

'odification in auditors report on the prior period remainunresolved

%he auditor shall modify the auditors opinion on thecurrent periods FSs!

'isstatement in prior period FSs

0f the auditor obtains audit evidence that a materialmisstatement exists in the prior period FSs on which anunmodified opinion has been previously issued, and thecorrespondin fiures have not been properly restated, theauditor shall express a #ualified opinion or an adverseopinion in the auditors report on the current period FSs!

6hen the prior period FSs that are misstated have notbeen amended and an auditors report has not been

reissued, but the correspondin fiures have been properlyrestated or appropriate disclosures have been made in thecurrent period FSs, the auditors report may include anEmphasis of 'atter pararaph!

/rior period FSs not audited

%he auditor shall state in an .ther 'atter pararaph in the

auditors report that the correspondin fiures areunaudited!

/rior period FSs audited by a predecessor auditor

%he auditor shall state (if nor prohibited by law to do so) inan .ther 'atter pararaph in the auditors report:a) %hat the FSs of the prior period were audited by the

predecessor auditor;b) %he type of opinion expressed and, if the opinion was

modified, the reasons therefore; andc) %he date of that report!

5omparative financial statements

%he auditors opinion shall refer to each period for whichFSs are presented on which an audit opinion is expressed!

.pinion on /rior /eriod FSs *ifferent from /revious .pinion

%he opinion expressed on the prior period FSs may bedifferent from the opinion previously expressed if theauditor becomes aware of circumstances or events thatmaterially affect the FSs of a prior period durin the courseof the audit of the current period! %he auditor shall disclosethe substantive reasons for the different opinion in an.ther 'atter pararaph!

/rior /eriod FSs Audited by a /redecessor Auditor

0n addition to expressin an opinion on the current periodsFSs, the auditor shall state in an .ther 'atter pararaph:a) that the FSs of the prior period were audited by a

predecessor auditor;b) the type of opinion expressed and, if the opinion was

modified, the reasons therefore; andc) the date of that report,unless the predecessor auditors report on the prior

periods FSs is reissued with the FSs!

/rior /eriod Financial Statements ?ot Audited

0f the prior period FSs were not audited, the auditor shallstate in an .ther 'atter pararaph that the comparativeFSs are unaudited!

Other I!*or#"tio! i! Do(u#e!ts Co!t"i!i!0 Auditedi!"!(i") St"te#e!ts


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.ther information refers to financial and non1financialinformation (other than the FSs and the auditors reportthereon) which is included, either by law, reulation orcustom, in a document containin audited FSs and theauditors report thereon! .ther information may comprise,for example:

A report by manaement or %567 on operations!

Financial summaries or hihlihts! Employment data!

/lanned capital expenditures!

Financial ratios!

?ames of officers and directors!

Selected #uarterly data!

2*ocuments containin audited FSs3 refers to annualreports (or similar documents), that are issued to owners(or similar sta+eholders), containin audited FSs and theauditors report, as well as other documents containinaudited FSs, such as those used in securities offerins!

%he auditors opinion does not cover other information and

the auditor has no specific responsibility for determininwhether or not other information is properly stated!Gowever, the auditor reads the other information becausethe credibility of the audited FSs and the auditors report"ay be under"ined by "aterial inconsistencies betweenthe audited FSs and other information!

Material Inconsistencies

0f, on readin the other information, the auditor identifies amaterial inconsistency, the auditor shall determine whetherthe audited FSs or the other information needs to berevised!

'aterial 0nconsistencies 0dentified in .ther 0nformation.btained /rior to the *ate of the Auditors &eport

0f revision of the audited FSs is necessary andmanaement refuses to ma+e the revision, the auditorshall modify the opinion in the auditors report!

0f revision of the other information is necessary andmanaement refuses to ma+e the revision, the auditorshall communicate this matter to %567; and

a) 0nclude in the auditors report an .ther 'atterpararaph describin the material inconsistency!

b) 6ithhold the auditors report!c) 6ithdraw from the enaement, if possible!d) See+ advice from the auditors leal counsel!

'aterial 0nconsistencies 0dentified in .ther 0nformation.btained Subse#uent to the *ate of the Auditors &eport

0f revision of the audited FSs is necessary, the auditor shallfollow the relevant re#uirements in 2Subse#uent Events3!

0f revision of the other information is necessary andmanaement arees to ma+e the revision, the auditor shallcarry out the procedures necessary under thecircumstances, which may include reviewin the stepsta+en by manaement to ensure that individuals in receiptof the previously issued FSs, the auditors report thereon,and the other information are informed of the revision!

0f revision of the other information is necessary, butmanaement refuses to ma+e the revision, the auditorshall notify %567 of the auditors concern reardin the

other information and ta+e any further appropriate action,which may include obtainin advice from the auditors lealcounsel!

Material Misstate"ents of 'act

0f, on readin the other information for the purpose ofidentifyin material inconsistencies, the auditor becomesaware of an apparent material misstatement of fact, theauditor shall discuss the matter with manaement!'isstatement of fact occurs when other information that isunrelated to matters appearin in the audited FSs that isincorrectly stated or presented! A material misstatement offact may undermine the credibility of the documentcontainin audited FSs!

0f the auditor concludes that there is a materialmisstatement of fact in the other information whichmanaement refuses to correct, the auditor shall notify%567 of the auditors concern and ta+e any furtherappropriate action, which may include obtainin advicefrom the auditors leal counsel!

- do!e -

MULTIPLE CHOICE

St"!d"rd Auditors ReortC! %o distinuish it from reports that miht be issued by

others, such as by officers of the entity, the board ofdirectors, or from the reports of other auditors whomay not have to abide by the same ethicalre#uirements as the independent auditor, the auditorsreport should have an appropriatea! Addressee c! Sinatureb! %itle d! .pinion

! %he audit report is normally addressed to the>oard of Shareholders /resident of the

*irectors entitya! Hes Hes Hesb! ?o Hes Hesc! Hes Hes ?o

d! Hes ?o ?o

! %he introductory pararaph of the standard auditreport includes the followin:

0! 0dentification of the entity whose financialstatements (FSs) have been audited!

00! Statement that the FSs have been audited!000! %itle of each of the FSs that comprise the complete

set of FSs!

0L! &eference to Mbasic financial statementsM withoutindicatin the title of each of the FSs!

L! &eference to the summary of sinificant accountinpolicies and other explanatory notes

L0! Specific date and period covered by theFSs!

L00!&eference to /hilippine Standards on Auditin!

6hich of the foreoin are specifically re#uired by theapplicable standards on auditin to be included orreferred to in the introductory pararaph of thestandard audit reportNa! 0,00, 0L, L0, L00 c! 0, 00, 000, L, L0b! 0, 00, 000, L, L0, L00 d! 00, 000, L, L0

O! An entitys manaement is responsible for thepreparation and fair presentation of the financial

statements! 0ts responsibility includes the followin,excepta! *esinin, implementin, and maintainin internal

control relevant to the preparation andpresentation of financial statements!

b! 'a+in accountin estimates that are reasonablein the circumstances!

c! Selectin and applyin appropriate accountinpolicies!


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d! Assessin the ris+s of material misstatement of thefinancial statements!

D! An auditors responsibility to express an opinion on thefinancial statements isa! 0mplicitly represented in the auditors report!b! Explicitly represented in the 2Auditors

&esponsibility3 pararaph of the auditors report!c! Explicitly represented in the 2'anaements

&esponsibility3 pararaph of the auditors report!d! Explicitly represented in the opinion pararaph of

the auditors report!

the accountin policies used!00! An audit includes evaluatin the reasonableness of

accountin estimates made by auditor!000! Evaluatin the overall presentation of the financial

statements!0L! An audit involves performin procedures to obtain

audit evidence about the amounts anddisclosures in the financial statements!

L! %he procedures selected depend on the auditorPs-udment!

6hich of the foreoin concerns are stated in the auditreportNa! 0, 000, 0L, L c! 0, 000, Lb! 0, 00, 000 d! 0, 00, 0L

Q! %he opinion pararaph of the auditors report0! 0dentifies the applicable financial reportin

framewor+ (/F&Ss) on which the FSs are based!00! Expresses an opinion on the financial statements!a! 0 only c! >oth 0 and 00

b! 00 only d! ?either 0 nor 00=! 6hich pararaphs of an auditors report on financial

statements should refer to /hilippine Financial&eportin StandardsNa! 0ntroductory and opinionb! Auditors &esponsibility and 'anaements

&esponsibilityc! 0ntroductory and Auditors &esponsibilityd! 'anaements &esponsibility and .pinion

J! 6hen financial statements are audited by anaccountin firm, the partner1in1chare of enaementordinarily sins in the name of the firm because:a! %he partner1in1chare of enaement should be

relieved of any responsibility reardin the opinionissued!

b! 0t is re#uired by reportin standards!c! %he firm assumes responsibility for the audit!d! %he opinion becomes more credible if sined in

name of the firm!

CB! 6hich of the followin information is(are) re#uiredwhen an auditors report is issued on financialstatements to be filed with the Securities andExchane 5ommissionNC! Audit report is manually sined!! 5ertifyin partner to sin his name!! /artners %ax 0dentification ?umber!O! /&5 reistration numberD! Accreditation with SE5a! C, , , O, D c! C, , O, Db! , O, D d! , , O, D

CC! %he followin statements relate to the date of theauditors report! 6hich is falseNa! %he auditor should date the report as of the

completion date of the auditb! %he date of the auditors report should not be

earlier than the date on which the financial

statements are sined or approved bymanaement

c! %he date of the auditors report should not be laterthan the date on which the financial statementsare sined or approved by manaement!

d! %he date of the auditors report should always belater than the date of the financial statements (i!e!,

the balance sheet date)!C! %he auditors report shall name the location in the

country or -urisdiction where the auditor practices!

6hen the auditor addresses other reportinresponsibilities in the auditors report on the financialstatements that are in addition to the auditorsresponsibility to express the opinion on the financialstatements, these other reportin responsibilities shallbe addressed in a separate section in the auditorsreport followin the .pinion section! %his separatesection shall be sub1titled 2&eport on .ther eal and&eulatory &e#uirements!3a! %rue, %rue c! False, %rue

b! False, False d! %rue, False

odi*i("tio!s to the St"!d"rd Auditors ReortC! /SA QBD establishes three types of modified opinions,

namely, a #ualified opinion, an adverse opinion, and adisclaimer of opinion! %he decision reardin whichtype of modified opinion is appropriate depends upon:0! %he nature of the matter ivin rise to the

modification, i!e!, whether the financial statementsare materially misstated or whether there is aninability to obtain sufficient appropriate auditevidence

00! %he auditors -udment about the pervasiveness ofthe effects or possible effects of the matter on thefinancial statements

a! 0 only c! >oth 0 and 00b! 00 only d! ?either 0 nor 00

CO! 6hen an auditor issues an adverse opinion, theimplication is that the auditora! *oes not +now if the financial statements are

presented fairly!b! *oes not believe the financial statements are fairly

presented!

c! 0s satisfied that the financial statements arepresented fairly except for a specific aspect ofthem!

d! 0s satisfied that the financial statements arepresented fairly!

E#h"sis o* #"tterCD! 6hen the auditor includes an Emphasis of 'atter

pararaph in the auditors report, the auditor shall0! 0nclude it immediately before the .pinion

pararaph in the auditors report00! "se the headin 2Emphasis of 'atter3000! 0nclude in the pararaph a clear reference to the

matter bein emphasi8ed and to where relevantdisclosures that fully describe the matter can befound in the financial statements; and

0L! 0ndicate that the auditors opinion is not modified inrespect of the matter emphasi8ed

a! 00 and 000 only c! 0 and 00 onlyb! 0, 000 and 0L only d! 00, 000 and 0L

C

opinion!b! Liolates /SAs if this information is already

disclosed in notes to the financial statements!


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c! ?ecessitates a revision of the opinion pararaph toinclude the phrase 2with the foreoinexplanation3!

d! 0s appropriate and would not neate theun#ualified opinion!

CQ! An additional pararaph reads as follows:

.n .ctober CD, BC, the 5ompany emered fromban+ruptcy! As discussed in the notes the financialstatements, the 5ompany accounted for thereorani8ation usin 2fresh accountin3 and, as aresult, the post1reorani8ation financial statements arenot comparable to the pre1orani8ation financialstatements%he pararaph li+ely is intended to:a! ualify an opinionb! Emphasi8e a matterc! &eport an inconsistencyd! 0ndicate a departure from /F&S

Other "tter +"r"0r"hC=! 6hich of the followin circumstances in which an .ther

'atter /araraph may be necessary, exceptNa! 6here the auditor is unable to resin from an

enaement when the possible effect of an inabilityto obtain sufficient appropriate audit evidence dueto a limitation on the scope of the audit imposedby manaement is pervasive!

b! Elaboration on matters that provide furtherexplanation of the auditors responsibilities for thefinancial statements!

c! An entity may prepare one set of FSs inaccordance with a eneral purpose framewor+ and

another set of FSs in accordance with anothereneral purpose framewor+, and enae theauditor to report on both sets of FSs!

d! FSs prepared for a specific purpose may beprepared in accordance with a eneral purposeframewor+ because the intended users havedetermined that such eneral purpose financialstatements meet their financial information needs!

I!"2i)it, to o2t"i! su**i(ie!t "!d "rori"te "udite/ide!(e 3S(oe Li#it"tio!4CJ! Rin, 5/A, was enaed to audit the financial

statements of ?ewton 5ompany after its fiscal yearhad ended! Rin neither observed the inventory countnor confirmed the receivables by direct communication

with debtors, but was satisfied concernin both afterapplyin alternative procedures! Rins auditorsreport most li+ely contained a(an)a! ualified opinion!b! *isclaimer of opinion!c! "n#ualified opinion without mentionin the

alternative procedures!d! "n#ualified opinion with an explanatory pararaph!

B! &estrictions imposed by a client prohibit theobservation of physical inventories, which account forDK of all assets! Alternative audit procedures cannotbe applied, althouh the auditor was able to examinesatisfactory evidence for all other items in the financial

statements! %he auditor should issue a(an)a! 2Except for3 #ualified opinion!b! *isclaimer of opinion!

c! "n#ualified opinion with a separate explanatorypararaph!

d! "n#ualified opinion with an explanation in theauditors responsibility pararaph!

C! 6hen disclaimin an opinion due to a client1imposedscope limitation, an auditor should indicate in a

separate pararaph why the audit did not comply with/SAs! %he auditor should also omit the Auditors responsibility

paragraph Opinion paragrapha! ?o Hesb! Hes Hesc! ?o ?o

d! Hes ?o

! An auditor who #ualifies an opinion because of aninsufficiency of evidence should describe the limitationin an explanatory pararaph! %he auditor should alsomodify the

AuditorsResponsibilityparagraph

Opinionparagraph

Notes to thefinancial

state"entsa! Hes ?o Hesb!c!

?o?o

HesHes

?o?o

d! Hes Hes ?o

! %he opinion to be expressed when an auditor isenaed to audit a clients financial statements afterthe annual physical inventory count and the accountinrecords are not sufficiently reliable to enable theauditor to become satisfied as to the year1endinventory balances isa! either an 2except for3 #ualified opinion or an

adverse opinionb! either a disclaimer or an 2except for3 #ualified

opinionc! either an adverse opinion or a disclaimer of opiniond! an un#ualified opinion

O! 6hen there is a limitation in the scope of the audit thatresults to a disclaimer of opinion, the followinpararaphs are modified, excepta! 0ntroductory pararaphb! 'anaements responsibility pararaphc! Auditors responsibility pararaphd! .pinion pararaph

S "re #"teri")), #isst"ted 3De"rture *ro# +RS4D! 0f the financial statements, includin accompanyin

notes, fail to disclose information that is re#uired by/F&Ss, the auditor should express either a(an)a! 2Except for #ualified opinion or adverse opinion!b! Adverse opinion or a 2sub-ect to3 #ualified opinion!c! 2Sub-ect to3 #ualified opinion or un#ualified opinion

with a separate explanatory pararaph!

d! "n#ualified opinion with a separate explanatorypararaph or an 2except for3 #ualified opinion!

pararaph, since the departure from /F&Ss isdisclosed

b! 0ssue an un#ualified opinion, but emphasi8e thematter in an explanatory pararaph

c! 0ssue a #ualified opiniond! *isclaim an opinion

Q! Eale 5ompanys financial statements contain adeparture from /F&Ss because, due to unusual

circumstances, the statements would otherwise bemisleadin! %he auditor should express an opinionthat isa! "n#ualified but not mention the departure in the

auditors report!b! "n#ualified and describe the departure in a

separate pararaph!c! ualified and describe the departure in a separate

pararaph!


8/9


9/9



supplementary information, and report anymaterial misstatements in such information!

OB! 0f manaement chooses to place supplementaryinformation in footnotes to the financial statements,this information should be clearly mar+ed asa! "naudited!b! Supplementary information re#uired by the SE5!c! *isclosures re#uired by the SE5!d! Audited financial data re#uired by 7AA/!

Co#"r"ti/e I!*or#"tio!OC! An auditor expressed a #ualified opinion on the prior

yearPs financial statements because of a lac+ ofade#uate disclosure! %hese financial statements areproperly restated in the current year and presented incomparative form with the current yearPs financialstatements! %he auditorPs updated report on the prioryearPs financial statements shoulda! >e accompanied by the auditorPs oriinal report on

the prior yearPs financial statements!b! 5ontinue to express a #ualified opinion on the prior

yearPs financial statements!c! 'a+e no reference to the type of opinion expressed

on the prior yearPs financial statements!d! Express an un#ualified opinion on the restated

financial statements of the prior year!

O! ewel, 5/A, audited 0nfinite 5o!Ps prior year financialstatements! %hese statements are presented withthose of the current year for comparative purposeswithout ewelPs auditorPs report, which expressed a#ualified opinion! 0n draftin the current yearPsauditorPs report, 5rain, 5/A, the successor auditor,

should0! ?ot name ewel as the predecessor auditor!

00! 0ndicate the type of report issued by ewel!000! 0ndicate the substantive reasons for ewelPs

#ualification!

a. 0 only! c! 00 and 000 only!

b. 0 and 00 only! d! 0, 00, and 000!

O! 6hen unaudited financial statements are presented incomparative form with audited financial statements ina document filed with the Securities and Exchane5ommission, such statements should be

Mar0ed as1unaudited

1

2ithheld until

audited

Referred to inthe auditor3s

report

a! Hes ?o ?o

b! Hes ?o Hes

c! ?o Hes Hes

d! ?o Hes ?o

Other I!*or#"tio!OO! 6hich of the followin best describes the auditorPs

responsibility for Mother informationM included in the

annual report to stoc+holders, which contains financialstatements and the auditorPs reportNa! %he auditor has no obliation to read the Mother

information!Mb! %he auditor has no obliation to corroborate the

Mother informationM but should read the MotherinformationM to determine whether it is materiallyinconsistent with the financial statements!

c! %he auditor should extend the examination to theextent necessary to verify the Mother information!M

d! %he auditor must modify the auditorPs report tostate that the Mother information is unauditedM orMnot covered by the auditorPs report!M

OD! An auditor concludes that there is a materialinconsistency in the other information in an annualreport to shareholders containin audited financialstatements! 0f the auditor concludes that the financialstatements do not re#uire revision, but the clientrefuses to revise or eliminate the materialinconsistency, the auditor maya! &evise the auditorPs report to include a separate

explanatory pararaph describin the materialinconsistency!

b! 0ssue an Mexcept forM #ualified opinion afterdiscussin the matter with the clientPs board ofdirectors!

c! 5onsider the matter closed since the otherinformation is not in the audited financialstatements!

d! *isclaim an opinion on the financial statementsafter explainin the material inconsistency in aseparate explanatory pararaph!

- e!d o* AT.116 -

At.116_The Auditor's Reports

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Transcript of At.116_The Auditor's Reports